I want to start this blog post with the personal note, that it is sad, that ethics alone, doesn’t drive behaviour in business. We all know that, people and planet are exploited despite everyone factually knowing, that it is the wrong thing to do. If the choice is between doing the ethical thing and delivering on the hardest bottom line possible, many businesses will still not look for a balance of the two, but shoot for the latter…
So, I want to come straight to the point: too many people in business still believe that diversity is “just” a question of ethics. And whilst it absolutely is about ethics, equal opportunities and fairness of course – it is not so exclusively. I want to shine some light on the concrete facts, that diversity is good for your business in an economic sense, aka the bottom line too. The reason, why I want to do this, is again by no means to make the ethics issue smaller. But in too many conversations, I still get the feeling that some people regard the topic as somewhat charitable. Which is simply the wrong way of looking at it. Diversity is a matter of ethics AND economy. Here is why:
(For clarification: diversity extends beyond the traditional dimensions of race, gender, and ethnicity to include LGBTQ+ individuals and people with a range of neurological differences, a category known as neurodiversity)
Improved financial performance
Let’s start with the bottom line, straight away then. According to a 2015 McKinsey report, companies in the top quartile for racial and ethnic diversity are 35% more likely to have financial returns above their respective national industry medians. The same report from 2020 found that companies in the top quartile for gender diversity on executive teams were 25% more likely to have above-average profitability than companies in the bottom quartile. This suggests that a higher proportion of women in leadership roles indeed has a positive impact on a company’s bottom line. Another study, by the Peterson Institute for International Economics in 2016, interviewed 21,980 firms from 91 countries and found that companies that went from having no women in their corporate leadership, to a 30% female share, could see a 1% increase in net margin, which translates to a 15% boost in profitability for a typical firm. An article in Harvard business review, references that preliminary results suggest that an organization with neurodiverse testing teams are 30% more productive than the others.
Enhanced creativity and innovation
A Harvard Business Review study found that diverse teams were capable of solving problems faster than cognitively similar teams. Having a diverse workforce means having a broad range of perspectives, which in turn, can lead to innovative solutions and creative ideas. Different backgrounds mean different experiences and different ways of thinking, which are crucial in brainstorming sessions and problem-solving tasks. Let’s take an example of companies such as Auticon AG and Unicus AS, companies that exclusively employ software developers on the autism spectrum: their success stories attest that their consultants were able to detect and find errors much faster in the companies they were deployed in, resulting in less business interruption and downtime and faster development cycles.
Better decision making
A study published in the journal “Personality and Social Psychology Bulletin”, showed that businesses with more diverse workforces make better decisions up to 87% of the time, compared to decisions made by homogenous teams. This means, both the accuracy and the quality of decisions were improved by employing diverse teams to a task. The researchers believe that this was due to the fact that diverse teams were more likely to scrutinize each other’s decisions, leading to fewer errors and better decision-making. They, of course, bring a wider range of perspectives and experiences and this diversity can help to counteract individual biases and can ensure that a broader range of potential outcomes is considered.
Increased market share and broad customer base
Embracing diversity can also boost a company’s market share. A study from the Center for Talent Innovation notes that companies with diverse teams are 45% likelier to report a growth in market share over the previous year and 70% likelier to capture a new market. A diverse workforce can bring a wider range of perspectives, which can better reflect the diversity of the customers a company serves. These employees can provide insights into the needs, wants, and cultural nuances of different demographic groups, which can help the company to design and market products or services that appeal to a broader audience. If a company is conducting business or looking to expand business internationally, having employees from diverse backgrounds can be particularly valuable. These employees have a better understanding of the local culture, language, and business practices, which can help the company to avoid costly mistakes and better tailor its offerings to the local markets.
Enhanced employee engagement
A survey conducted by Deloitte revealed that employee engagement is boosted when organizations commit to diversity and inclusion. Employee engagement is a measure of an employee’s emotional commitment and connection to their organization. Engaged employees are more likely to be productive and loyal to their organization and thus, leading to increased productivity and job satisfaction.
Promoting an inclusive culture attracts (and retains) top talent
A Glassdoor survey found that 67% of job seekers consider diversity an important factor when considering employment opportunities. By promoting an inclusive culture, companies can attract a wider pool of candidates, which could lead to hiring more top-quality talent. Especially important now, during a time for war on talent: Gen Z is a generation which is highly socially conscious and concerned about issues of social justice. For them, even more than for previous generations, it is important to work for companies that reflect their values, including a commitment to diversity and inclusion. Most members of Gen Z have a global perspective and see themselves as global citizens. They therefore value the ability to work with people from different backgrounds and cultures, which can be facilitated by a diverse workforce.
Improved reputation and employer brand
In a (finally) increasingly socially conscious marketplace, a company’s commitment to diversity and inclusion can have a significant impact on its brand and reputation. This ties in directly to a company’s Environmental, Social, and Governance (ESG) goals, with the ‘Social’ component of ESG particularly focused on how a company manages relationships with its employees, suppliers, customers and the communities where it operates. We talked about the attractiveness for talent, but also consumers are increasingly interested in supporting businesses that align with their values, and for many, diversity and inclusion are key components of those values. According to a 2022 McKinsey report, customers are increasingly selecting brands with strong ESG credentials, even if the price is higher. Last but not least, as the general social consciousness raises, also investors are increasingly considering ESG factors in their investment decisions. Companies that can demonstrate a commitment to diversity and inclusion, are therefore more attractive to them.
So, hopefully with the above facts and numbers, it is clear that implementing diversity in the workplace is not only a strategy for promoting equality and social justice—it also yields tangible (direct and indirect financial) benefits that drive the success of an organization. With that, let’s embrace diversity, enjoy learning about other perspectives than our own and grow as people and businesses together!
